Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

A central bank can reduce inflation by reducing money supply growth, but it necessarily does so at the cost of permanently raising the unemployment rate.

The "natural" rate of unemployment is the unemployment rate toward which the economy gravitates in the

Closely watched indicators such as the inflation rate and unemployment are released each month by the

Refer to the Economy in 2008. In the short-run the housing and financial crises

In 1980, the combination of inflation and unemployment the U.S. was experiencing

Other things the same, in the long run a country that reduces the minimum wage from very high levels will have

A common explanation for the behavior of the short-run U.S. Phillips curve in 2009 and 2010 is that, over the previous 20 or so years, the Federal Reserve had

If the Fed raised the money supply growth by more than expected then the unemployment rate would_______in the short run. Explain the process by which the economy moves to the long run if the Fed maintains the higher money supply growth rate.

Suppose expected inflation and actual inflation are both relatively high, and unemployment is at its natural rate. If the Fed then pursues a contractionary monetary policy, which of the following results would be expected in the short run?

Samuelson and Solow believed that the Phillips curve offered policymakers a menu of possible economic outcomes.

The natural rate of unemployment is the same as the socially optimal rate of unemployment.

If monetary policy moves unemployment below its natural rate, both expected and actual inflation will rise.

Refer to Figure 35-4. What is measured along the horizontal axis of the right-hand graph?

There is an adverse supply shock. In response the Federal Reserve pursues an expansionary monetary policy. Taking into account both the shock and the Federal Reserve's policy, which of the following are we sure of?

A decrease in expected inflation shifts

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

A central bank that accommodates an aggregate supply shock

There is a

A given short-run Phillips curve shows that an increase in the inflation rate will be accompanied by a lower unemployment rate in the short run.

Figure 35-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 35-2. If the economy starts at C and 1, then in the short run, an increase in taxes moves the economy to